To Aggregate, Or Not To Aggregate, That Is The Question: Analysis Of SAT Order In Linde India Limited vs SEBI

The Securities Appellate Tribunal (SAT) recently, in its order dated December 5, 2025 (SAT Order), upheld the order passed by a whole time member of Securities and Exchange Board of India (SEBI) on July 24, 2024 (SEBI Order) which required Linde India Limited (LIL) to test the materiality of future related party transactions (RPTs) and obtain shareholders' approval "as per the threshold provided under Regulation 23(1) of the LODR Regulations on the basis of the aggregate value of the transactions entered into with any related party in a financial year, irrespective of the number of transactions or contracts involved."

While the SAT Order deals with other issues as well, the discussion under this article is limited to determining the materiality of related party transactions and the requirement of obtaining shareholders' approval for related party transactions.

Background

LIL had sought an omnibus approval from its public shareholders in respect of all RPTs from January 1, 2021 to December 31, 2023 that were likely to be entered into with related parties, Praxair India Private Limited (PIPL) and Linde South Asia Services Private Limited, which were, in aggregate, likely to exceed the materiality threshold prescribed under Regulation 23(1) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). This was not approved by the public shareholders.

Based on certain legal opinions, LIL decided not to aggregate transactions with a related party, as in its view, aggregation was to be made only of such transactions, which pertain to a single contract in terms of its interpretation of the definition of RPT, as per Regulation 2(1)(zc) of the LODR Regulations.

Pursuant to an investigation by SEBI based on investor complaints received that LIL had executed certain RPTs with PIPL without obtaining shareholders' approval as required under the LODR Regulations, the SEBI Order was passed which was the subject matter of the appeal before the SAT.

Applicable Provisions

(a) 'Related party transaction' is defined under Regulation 2(1)(zc) of the LODR Regulations as follows:

"...means a transaction involving a transfer of resources, services or obligations between:

(i) A listed entity or any of its subsidiaries on one hand and a related party of the listed entity or any of its subsidiaries on the other hand; or

(ii) A listed entity or any of its subsidiaries on one hand, and any other person or entity on the other hand, the purpose and effect of which is to benefit a related party of the listed entity or any of its subsidiaries, with effect from April 1, 2023;

regardless of whether a price is charged and a "transaction" with a related party shall be construed to include a single transaction or a group of transactions in a contract

(b) The first proviso to Regulation 23(1) of the LODR Regulations, as it stood prior to amendment in November 2025, provided that "a transaction with a related party shall be considered material, if the transaction(s) to be entered into by it, individually or taken together with previous transactions during a financial year, exceed(s) rupees one thousand crore or 10% of the annual consolidated turnover of the listed entity as per the last audited financial statements of the listed entity, whichever is lower."

(c) Regulation 23(4) of the LODR Regulations states the following:

"All material related party transactions and subsequent material modifications as defined by the audit committee under sub-regulation (2) shall require prior approval of the shareholders through resolution and no related party shall vote to approve such resolutions whether the entity is a related party to the particular transaction or not: ...."

Legal Contentions

The issue in question was whether for the purpose of approval by non-interested shareholders under Regulation 23(4) of the LODR Regulations, all transactions with 'a related party' during a financial year, are to be aggregated or only 'a transaction or a group of transactions in a contract' is to be considered.

LIL made the following arguments, amongst others:

1. the clarification in the definition of Regulation 2(1)(zc) must be imported to the proviso of Regulation 23(1) for determining materiality of RPTs, and therefore, transaction(s) with a related party, pertaining to a 'single contract' alone need to be aggregated for testing the materiality threshold. Given that each transaction with PIPL was an independent contract, and none of the said transaction individually breached the threshold, the same does not require shareholders' approval in terms of section 188 of the Companies Act, 2013 (Companies Act);
2. SEBI's interpretation, which implies aggregation of all transactions regardless of nexus, may lead to impractical and absurd outcomes, such as requiring shareholders' approval for each and every insignificant transaction once the 10% turnover threshold is exceeded;
3. the Guidance Note issued by the Institute of Company Secretaries of India (ICSI), interprets 'RPTs' for materiality assessment under Regulation 23(1) as only those transactions, which are executed under a 'common contract'; and
4. LIL's interpretation of Regulation 23 poses no circumvention risk due to safeguards in Section 188 of the Companies Act, 2013 and the relevant rules, which impose specific sub-limits on various transactions (distinct thresholds for various contract types such as sales, purchases, leasing, or services, each at 10% or more of turnover or net worth).

SEBI's key contentions were as follows:

1. If LIL's view of testing materiality based on transactions pertaining to a single contract only is accepted, it would enable entities to structure their transactions across multiple contracts to evade materiality; and
2. LIL's reading of "in a contract" in Regulation 2(1)(zc) overlooks the plural transactions in the proviso to Regulation 23 and the inclusive nature indicated by the term "include", rendering the definition inclusive.

SAT's findings

1. Regulation 2(1)(zc), while defining the term 'RPT' in a generic manner, clarifies that "a transaction with a Related Party" means to include a 'single or a group of transactions in a contract'. This limb of the definition only clarifies that where in respect of a contract between two related parties, there have been group of transactions, each one of them shall be treated as an RPT and the listed entity shall be governed in respect of all of them by the same procedural requirement as for a single RPT transaction.
2. Regulation 23(1) consistently uses the plural term 'related party transactions' for addressing RPTs for aggregation, which implies that all transactions qua 'a related party' are to be considered for testing the materiality (and not qua a single contract). It implies that all transaction(s) undertaken during a financial year with a specific related party, are to be aggregated in terms of Regulation 23(1).
3. Though the provisions of Section 188 of the Companies Act are applicable to both listed and unlisted companies, keeping in view the specialised nature of the LODR Regulations applicable for a listed entity considering implications for public shareholders, higher standard of disclosure is made necessary.

Our Analysis

We agree with SEBI's purposive interpretation mandating obtaining shareholders' approval in related party transactions when it crosses a threshold limit to avoid mischief or any possible favouritism. Permitting entities to structure their transactions across multiple contracts would help them evade the materiality threshold, which is contrary to the objective of safeguarding public shareholders in high-value related party transactions, where large payments may be made by a listed entity to other entities related to shareholders of the listed company.

On an allied topic, we would highlight that the definition of related party transaction is very wide and also includes within its purview transactions between a listed company and other entities which may not be a related party. This has been confirmed by SEBI in its informal guidance dated October 11, 2024. A consequence of the SAT's finding is that shareholders' approval may be required for independent transactions between a listed company and unrelated parties, for example, an arms' length transaction between a listed company and the joint venture partner of its subsidiary. This may not be an intended consequence, and SEBI should consider relaxing requirements in such cases where entities may already be regulated by a regulator or where such companies are listed entities, and therefore there are strict corporate governance requirements in place.

Conclusion

The SAT Order has cleared the air on the shareholders' approval requirement for related party transactions, mandating aggregation of all transactions with a related party in a financial year instead of transactions with a related party in a contract.

In November 2025, SEBI introduced a tiered scale-based materiality framework by way of an amendment to the LODR Regulations, linking the threshold for material related party transactions to the annual consolidated turnover of the listed entity based on the last audited financial statements. This shift from a uniform threshold to a turnover-linked framework seeks to bring proportionality and objectivity, ensuring that the materiality test reflects the size and operational scale of the listed entity. Additionally, while the amendment recalibrates the quantum threshold, it does not dilute the aggregation principle affirmed in Linde India.

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